$500 million acquisition immediately accretive to Adjusted Funds from Operations, and earnings; company increases financial guidance for 2017
EDMONTON, Alberta – Capital Power Corporation (Capital Power or the Company) (TSX: CPX) today announced that it has entered into an agreement to acquire the thermal power business of Veresen Inc., consisting of two gas-fired generation facilities and two waste heat assets.
Under the terms of the agreement, Capital Power will acquire 284 megawatts (MW, net) of generation from two natural gas-fired power assets in Ontario consisting of the 84 MW East Windsor Cogeneration Centre (East Windsor) and a 50% interest in the 400 MW York Energy Centre (York Energy), and will operate both facilities. Both East Windsor and York Energy are under long-term power purchase agreements (PPAs) with the Ontario Independent Electricity System Operator (IESO, A rated) with original terms expiring in 2029 and 2032, respectively. Both assets earn revenue through fixed capacity payments partly indexed to inflation and are compensated for operations and maintenance, and fuel (commodity and transportation) as well as start-up costs. Additionally, East Windsor is under a long-term steam supply agreement with Ford Motor Company (BBB rated).
The transaction also includes 10 MW of zero-emissions waste heat generation from two facilities (5 MW each) located at Westcoast Energy’s BC Gas Pipeline compressor stations in Savona and 150 Mile House, British Columbia. The waste heat facilities are under 20-year Electricity Purchase Agreements (EPAs) with BC Hydro (AA rated) with original terms expiring in 2028. The EPAs provide for partial inflation indexation as well as premium pricing under peak load hours. Spectra Energy provides operations and maintenance services for the assets under a long-term agreement.
“These young, high-quality assets have an excellent operating history and will strengthen and diversify our existing fleet of assets,” said Capital Power’s President and CEO, Brian Vaasjo. “The long-term contracts associated with these assets have a weighted average remaining PPA life of 14 years that will enhance our contracted cash flows out to the end of the next decade. This transaction helps reduce our overall risk, enhance our ability to pay dividends and build shareholder value. Given Capital Power’s deep experience in operating thermal facilities and the ability to optimize value, these assets are an ideal addition to our fleet and an excellent strategic fit.”
The purchase price for the acquisition is $225 million in total cash consideration, subject to working capital adjustments and other closing adjustments, and the assumption of $275 million of project level debt (proportionate basis). Capital Power expects to finance the transaction through existing cash and its credit facilities. The transaction is expected to close in the second quarter of 2017, subject to regulatory approvals and satisfaction of closing conditions.
The acquisition is expected to increase adjusted funds from operations (AFFO) by an estimated $24 million in the first full year of operations, which will be accretive by 25 cents per share reflecting a 7% increase. The acquisition is expected to be accretive to earnings by 11 cents per share during its first full year of operations. The projected annual EBITDA generated by the assets is estimated to be $55 million per year.
With the acquisition, the Company has updated two of its corporate targets for 2017 that were originally announced in December 2016.
- Facility operating and maintenance expense of $205 million to $230 million ($195 million to $215 million previously), and
- AFFO of $320 million to $365 million ($305 million to $345 million previously).
CIBC Capital Markets is acting as exclusive financial advisor to Capital Power on the transaction.
Non-GAAP Financial Measure
Commencing in 2017, the Company uses adjusted funds from operations (AFFO) as a financial performance measure. This term is not a defined financial measure according to GAAP and does not have a standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures used by other enterprises. This measure should not be considered an alternative to net cash flows from operating activities calculated in accordance with GAAP. Rather, this measure is provided to complement the nearest GAAP measure in the analysis of the Company’s results of operations from management’s perspective. Through 2016, the Company used funds from operations (FFO) as a financial performance measure. A reconciliation of FFO to net cash flows from operating activities is contained in the Company’s Management’s Discussion and Analysis, prepared as of February 17, 2017 for the year ended December 31, 2016 which is available under the Company’s profile on SEDAR at www.sedar.com. The AFFO performance measure is FFO reduced by sustaining capital expenditures and preferred share dividends and adjusted to include cash from coal compensation that will be received annually.
Certain information in this news release is forward-looking within the meaning of Canadian securities law as it relates to anticipated financial and operating performance, events or strategies. The forward-looking information or statements are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes expectations regarding: (i) financing plans for the transaction, (ii) closing of the transaction, (iii) financial impacts including expected accretion in AFFO and earnings, and EBITDA contributions, (iv) contracted cash flows, (v) payment of dividends and (vi) diversification of assets.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate, including its review of the purchased businesses and assets. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) anticipated performance of the businesses, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, and (v) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in market prices and availability of fuel, (viii) ability to realize the anticipated benefits of the acquisition, (ix) limitations inherent in the Company’s review of the purchased businesses and assets, and (x) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s 2016 Management’s Discussion and Analysis (MD&A) for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
About Capital Power
Capital Power (TSX: CPX) is a growth-oriented North American power producer headquartered in Edmonton, Alberta. The company develops, acquires, operates and optimizes power generation from a variety of energy sources. Capital Power owns more than 3,200 megawatts of power generation capacity at 18 facilities across North America. More than 700 megawatts of owned generation capacity are in advanced development in Alberta and under construction in Kansas.